Portfolio Construction - Investment

Paul and Jean Cartnight need investment advice as they prepare to formally retire. Jean will also be retiring after working for 20 years as her company's bookkeeper. Paul is 65 years old and in excellent health. Jean is 63 years old and also in excellent health. The Cartnight have no children and are not concerned with estate planning. They would like to donate a portion of their wealth to their University, where they met, fell in love, and got a great education.

Economic Assumptions :

The current medium term economic forecasts are for continued, historically low short-term interest rates and a normal yield curve. Economic growth is predicted around average, inflation should be lower than historically, and unemployment levels hover around the natural rate.

Income Tax Information:

The Cartnight family is in the 25% federal income tax bracket. The state and local taxes for the Cartnight are 5.6%.

Personal and Financial Goals:

1. Maintain current lifestyle and corresponding spending

2. Travel more frequently.

3. Review investment portfolio and make changes as necessary to reflect different priorities and risk

tolerance level during retirement. In order of priority, clients indicate:

a. Willingness to take normal investment risks

b. Desire for adequate annual income

c. Hope for reasonable safety to principal, inflation protection, tax advantages and longterm

appreciation of principal

Current Portfolio Allocation Cash $60,000 Common Stock $164,500 Mutual Funds $1,000,000 Bonds $168,500 Total $1 393,000 Notes: 1. Balances are total of all accounts (Cash, IRAs, 401Ks, and Investments) 2. Client cannot locate portfolio details so exact securities currently cannot be determinedBalance Sheet Year Ended December 31 ASSETS Current Cash $8,000 Investments Securities Portfolio, Current Market Value Cash $60,000 Rollover IRA - William $55,000 Rollover IRA - Mary $30,000 401k - William $35,000 401k - Mary $25,000 Investment account $1,180,000 Total $1,393,000 Real Assets Home $288,000 Summer Home $126,000 Personal Property $60,000 Automobiles $55,000 Total $529,000 TOTAL $1.922.000 LIABILITIES Current Credit Cards $21,500 Non-Current Auto Loans $28,000 Primary Home Mortgage $80,000 Summer Home Mortgage $60,000 Total S189,500 Net Worth $1,732,500 TOTAL LIABILITIES AND WORTH $1,922,000Annual Pro Forma Income Statement Cash Basis CASH INFLOWS Social Security William $32,000 Marilyn $16,500 Dividends TBD Interest Income TBD Retirement drawdowns TBD Total $48,500 CASH OUTFLOWS Mortgage Primary residence $1,385 Summer home $985 Repairs and Maintenance Primary residence $8,600 Summer home $3,900 Insurance Primary residence $800 Summer home $550 Automobiles $2,000 Automobile payments $6,500 Food $4,800 Car payments $7,200 Clothing $5,000 Travel $5,000 Charitable contributions $6,000 Federal Income Tax TBD State Income Tax TBD Total $52,270 Net Income / Loss $3,770